When faced with a disputed lien strip, don’t discount the possibility of compromise.
I wrote last time about the seeming impossibility of compromising a §707(b)(3) action. Next to that, lien strips are easy.
Yet I see attorneys all around me folding the moment a secured creditor contests a motion to value. What opportunities squandered.
Having just come off a day long trial where good faith, property value, feasibility, and profitability were all in play, a lien strip looks like child’s play. There is only one issue: property value.
A contested lien strip is, in fact, a trial subject to most of the Part VII rules for adversaries. Take a look at Rule 9014. It imports most of the discovery rules that apply to adversaries.
Here’s a chance to build your litigation skills in a setting that is about as straightforward as you can imagine.
Consider compromise
Having, I hope, pumped you up about acquiring some courtroom polish, let me argue the other approach to this dispute: consider compromise.
A contested lien strip on a client’s home is, on it’s face, as black and white a contest as my 707(b)(3) matter: one dollar of equity for the challenged lien and your client is stuck with the junior mortgage.
But the stakes are just as stark on the creditor’s side: one dollar short, and their lien is worthless.
Presumably, you have two opinions of value, which suggests splitting the difference.
Early on in the Great Recession, I saw little interest on the part of supposedly secured creditors in settlements. But just like loan modifications, I’m seeing more willingness to consider settlement.
Neither side should lose sight of the cost of trying the matter, as well as the risk to both sides.
Work out the terms
If you can compromise on the face amount of the modified note, you need to agree on the terms. Best case for your client, the term of the note is unchanged. But that doesn’t need to be. Perhaps you agree to shortening the term as a sweetener to reach a deal.
Just as in loan modifications,be concerned as to how you document the modification and make sure it becomes part of the public record, either in the bankruptcy court or the land records of your county. I quake at the thought of the trainwreck ahead with all the modified loans with little or no supporting paper. Don’t leave your fingerprints on an inadequately memorialized deal.
Image courtesy of castle79.
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